VOLUME 14, NUMBER 1
FALL 2009

In This Issue...

GARVEE Roundup

GARVEE Issuance Surpasses the $9 Billion Level

Grant
Anticipation Revenue Vehicles (GARVEEs) continue to be an important financing
tool for transportation agencies to meet critical highway needs. This past
year marked a record for the program, with the highest annual level of GARVEEs
since the first issue was marketed in 1998. During 2008, eight states issued
a total of $1.7 billion in GARVEE bonds, bringing the total amount of GARVEEs
sold (excluding refunding issues) since enactment of the NHS Act of 1995
to nearly $9.3 billion. The past three years have reflected a significant
increase in GARVEE bond sales as shown in the chart above with over $5 billion
in GARVEEs issued in this period, over 50 percent of the total issuance to
date. Despite a weak and volatile market in the second half of 2008 and uncertainty
surrounding the Federal highway trust fund, state issuers were successful
in marketing GARVEE bonds. While some states postponed bond issues due to
unfavorable market conditions, others moved forward given critical funding
needs. States have been able to maintain the credit quality of GARVEEs through
structural protections to mitigate risk, such as high coverage levels, backup
pledges, and shorter maturities.

The eight GARVEE bond sales in 2008, which are highlighted below, are:

California - $97.6 million;

Georgia - $480.0 million;

Idaho - $173.0 million;

Maine - $50.0 million;

Maryland - $425.0 million;

Montana - $44.7 million;

Ohio - $375.0 million; and

Oklahoma - $98.2 million.

California. In October 2008, the State of California
and the California Department of Transportation (Caltrans) issued a second
series of Federal Highway Grant Anticipation Bonds (or GARVEE). The Series
2008A bonds were rated Aa3 by Moody's, and AA- by both Standard & Poor's
and Fitch Ratings. Bond proceeds will finance two State Highway Operation
and Protection Program (SHOPP) construction projects. Projects included in
the SHOPP are limited to capital improvements related to maintenance, safety,
and rehabilitation of the transportation infrastructure. The proceeds from
GARVEE funding allow these SHOPP projects to commence construction earlier
than would have been possible under traditional funding mechanisms. Caltrans
anticipates the issuance of future GARVEE bonds to fund 12 additional eligible
SHOPP projects with an overall program total of $2.0 billion. These future
construction projects are scheduled to be undertaken through June 2012.

Georgia. In March 2008 the Georgia State Road & Tollway
Authority brought its second GARVEE issue to market as part of a $600 million
highway revenue bond transaction. The bond was structured into two series - $480 million in Grant Anticipation Revenue Bonds and $120 million in Federal
Highway Reimbursement Revenue Bonds (often referred to as indirect GARVEEs).
Most of the proceeds, except for some $50 million to refund commercial paper
notes and costs of issuance, will be used to finance projects in the Governor's
Fast Forward Program (see IFQ Winter 2007). The projects identified and funded
through this program are ones that are expected to have the most immediate
impact on relieving congestion and enhancing economic development. Bonds
maturing in 2013, 2018, 2019, and 2020 are insured by Financial Security
Assurance, Inc. (FSA). The underlying credit is rated Aa3 by Moody's Investors
Service, and AA- by both Fitch Ratings and Standard & Poor's.

Idaho. Idaho also advanced its second GARVEE issue in
March 2008, selling $173 million. The bonds were issued by the Idaho Housing
and Finance Association, the conduit issuer for the Idaho DOT. Idaho's GARVEE
program, called "Connecting Idaho," began with the passage of enabling
legislation in 2005 which identified 13 eligible projects or regionally significant
corridors. The bonds are insured by FSA and have underlying ratings of Aa3
from Moody's and A+ from Standard & Poor's. The first bond issue was
sold in May 2006 in the amount of $194.3 million. Current plans are to raise
$998 million from GARVEE bonds to fund projects on six of the original corridors.
Each corridor includes one or more Connecting Idaho projects:

U.S. 95 - Garwood to Sagle;

U.S. 95 - Worley to Setters;

I-84 - Caldwell to Meridian;

I-84 - Orchard to Isaacs Canyon;

Idaho 16 - I-84 to South Emmett; and

U.S. 30 - McCammon to Soda Springs.

Last fall, Idaho postponed its third issue to raise an additional $115
million in GARVEE proceeds due to market conditions.

Maine. Maine advanced its second GARVEE issue in September
2008, issuing $50 million in Grant Anticipation Bonds through the Maine Municipal
Bond Bank, which serves as the conduit issuer for the Maine DOT. The bonds
were rated Aa3 by Moody's Investors Service and AA- by Fitch. The proceeds
of the bonds will be used to pay a portion of the costs of 15 projects made
up of three highway reconstruction projects and 12 bridge projects. The Bank
was authorized to issue the Series 2008A Bonds by the 2008 Program Act designed
to accelerate the funding and construction of qualified transportation projects.
Under the current legislation, the Bank will need further legislative authorization
to issue additional GARVEE bonds.

Maryland. After several months of watching the market,
the Maryland Transportation Authority in December 2008 sold its second and
final tranche of GARVEEs to help fund the construction of the Intercounty
Connector, the new 18.8-mile toll road project. The project is also being
financed with a $516 million TIFIA loan. Standard & Poor's assigned an
AAA rating to the issue with Fitch rating it AA and Moody's Aa2. While the
GARVEEs are secured by a senior lien on pledged Federal highway funds, the
credit is strengthened by an irrevocable pledge of the state tax revenues
from Maryland's transportation trust fund.

Montana. In June 2008, the Montana DOT issued $44.7 million
in Grant Anticipation Notes, the second in a series of bond issues to finance
improvements to a 44.8-mile stretch of U.S. Highway 93 from Evaro Hill just
north of Missoula to Polson, Montana. The Series 2008 Notes, rated Aa3 by
Moody's and AA- by Standard & Poor's, were issued on parity with the
Department's $122.8 million issue in 2005. The U.S. Highway 93 project is
called "The Peoples Way" because of the many groups and peoples
who have come together to make the project possible. The project began in
September 2004 and is expected to be completed by January 2011.

Ohio. Ohio's ninth GARVEE issue, its largest to date,
was brought to market in October 2008. This issue, sized at $375 million,
brought the total issuance amount to date for Ohio's GARVEEs to $1.3 billion.
The proceeds of the 2008 issue will help fund 24 highway and bridge projects
across the state, including both new and ongoing projects. Of the total,
$70 million of the proceeds will be used to reimburse the Ohio DOT for previously
incurred project expenditures. Fitch, Standard & Poor's, and Moody's
have assigned the 2008 bonds ratings of AA-, AA, and Aa2, respectively.

Oklahoma. With its November 2008 GARVEE bond sale of $98.2
million, the Oklahoma DOT completed the $300 million first phase of a planned
$500 million GARVEE program. This was the fourth issue to be sold. Oklahoma's
GARVEEs, structured as 15-year Grant Anticipation Notes, are financing 12
designated corridors of economic importance. The notes are rated A+ by Fitch
Ratings and Aa3 by Moody's.

Federal Credit Program

TIFIA's Growing Loan Portfolio

The U.S. Department of Transportation (DOT) has closed the following five
TIFIA loans since December 2007, totaling $2.5 billion in credit assistance:

Capital Beltway/I-495 High-Occupancy Toll (HOT) Lanes;

SH 130 Segments 5 and 6;

Intercounty Connector; I-595 Express Lanes; and

Triangle Expressway.

These five projects, three of which are public-private partnerships, represent
more than $8.6 billion of infrastructure investment in the United States.
Looking ahead, three more loans are expected to close by December 2009.

Capital Beltway

With its TIFIA loan closing in December 2007, the Capital Beltway HOT Lanes
project on I-495 is being financed with a creative mix of public and private
capital: approximately $408 million of state/Federal-aid grants from the
Virginia Department of Transportation (VDOT) was leveraged to attract $350
million of private equity, $589 million of Private Activity Bonds (PAB) sold
in the capital markets (the authority to issue PABs is allocated by DOT under
SAFETEA-LU authorization), and a subordinated TIFIA loan of up to $589 million.
The 14-mile project, estimated to cost close to $2 billion, will widen I-495
between the Georgetown Pike and the Springfield Interchange from eight to
12 lanes and convert the four inner lanes to limited access HOT lanes. Congestion
or dynamic pricing will be used to set the HOT lanes tolls, which will be
based on demand and fluctuate to reflect real-time traffic conditions.

The combination of PABs and a subordinated TIFIA loan provides low-cost,
flexible financing. This made it easier for the private sector to assume
the significant risks associated with the design, deployment, and operation
of a complicated dynamic pricing technology, which is expected to reduce
congestion on one of the busiest corridors in the country. The HOT lanes
will be free to carpools and buses, and other drivers will pay a toll that
will vary with traffic volume to ensure travel speeds of at least 45 miles
per hour in the HOT lanes.

SH 130 Segments 5 and 6

Closed in March 2008, the $430 million TIFIA loan for SH 130, Segments
5 and 6 will allow a private partner to construct a 40-mile portion of an
alternate route between Austin and San Antonio, Texas, through a public-private
partnership with the Texas Department of Transportation (TxDOT). The balance
of the financing for the $1.31 billion project is being provided through
private equity and a private bank debt facility. The project is part of the
90-mile SH 130 corridor development, providing a new north-south alternative
to the congested Interstate 35 between Austin and TIFIA Portfolio (Dollars
in Millions) San Antonio. The Facility Concession Agreement grants a 50-year
concession from the date the project opens to traffic to the SH 130 Concession
Company LLC, a joint venture of Spanish toll road operator Cintra and American
constructor Zachry American Infrastructure.

Intercounty Connector

On December 19, 2008, the U.S. DOT executed a $516 million loan for the
Intercounty Connector (ICC). The loan will help the Maryland Transportation
Authority build the ICC, an 18-mile, six-lane limited access toll highway
linking Prince George's and Montgomery counties. ICC tolls will vary according
to traffic levels throughout the day, and drivers will pay tolls electronically
to avoid waiting at tollbooths. The ICC will also connect the I-270 and I-95/U.S.
1 highways in the two counties where no contiguous high-capacity facility
exists to accommodate east-west travel and local roads are experiencing extremely
high traffic volumes. The Maryland Transportation Authority will secure the
loan and repay it with revenue from a number of toll facilities throughout
Maryland, in addition to revenue generated by the ICC. The total cost for
the project, estimated at more than $2.5 billion, will be funded also through
GARVEE and other revenue bonds and state funds.

I-595 Express Lanes

On March 2, 2009, the U.S. DOT executed a loan agreement with ACS Infrastructure
Development (ACSID) for $607 million to help finance the I-595 Express Lanes
Project which is being advanced by the Florida Department of Transportation
(FDOT) as a public-private partnership. The $1.8 billion project also includes
approximately $780 million of commercial bank debt and $217 million in borrower
equity contributions, secured by FDOT. ACSID, the winning concessionaire
process, is responsible for the design, construction, financing, and operation
and maintenance of the project. The first phase of the project calls for
construction of three new reversible HOT lanes in the I-595 median.

FDOT will retain the revenue risk and compensate the concessionaire with
availability payments, which are based on performance. FDOT will set and
collect the tolls and will compensate the concessionaire with maximum availability
payments (MAP) over the operating life of the project and final acceptance
payments (FAP) payable each year from substantial completion to 2018 according
to a set schedule in predetermined amounts (total FAP amount of $686 million).

Triangle Expressway

The latest TIFIA loan to reach financial close will finance the Triangle
Expressway in the Raleigh-Durham area of North Carolina. The $386 million
loan, which closed on July 10, 2009, will help the North Carolina Turnpike
Authority (NCTA) finance the construction of more than 18 miles of expressway
connecting the region's key interstates and state routes. The project will
improve access to I-40 serving downtown Raleigh, Research Triangle Park,
one of the largest science parks in North America employing more than 40,000
high-tech workers, as well as Duke University, North Carolina State University,
and University of North Carolina at Chapel Hill. In addition to the TIFIA
loan, funding for the $1.2 billion project will include some $600 million
bonds backed by state appropriations and toll revenues to be collected on
new expressway.

Recent GARVEE Issues

North Carolina Takes Flexible Approach to GARVEE Bond Issuance

The North Carolina Department of Transportation (NCDOT) first started looking
at using GARVEEs in late 2002 as a possible financing tool for replacement
of the Herbert C. Bonner Bridge, a vital infrastructure link on the state's
Outer Banks.

These early efforts continued with an innovative financing workshop held
in 2003 for many of the Southeastern states to discuss the use of GARVEEs
and their benefits and drawbacks. This workshop, executed with assistance
from the FHWA's North Carolina Division Office and the FHWA Resource Center
for Innovative Finance, gave NCDOT the opportunity to discuss with neighboring
states how GARVEEs had been implemented elsewhere. It also provided North
Carolina officials with ideas and models for using GARVEEs in their own state.

In August 2005, the state reached a milestone when the North Carolina General
Assembly passed legislation authorizing the issuance of GARVEE bonds. A joint
GARVEE issuance committee made up of representatives from the NCDOT, State
Treasurer's Office, FHWA North Carolina Division Office, and FHWA Resource
Center for Innovative Finance, as well as financial advisors and bond counsel
representatives, worked to achieve North Carolina's first sale of GARVEE
bonds on October 17, 2007. The timeline shown below provides an overview
of the delivery milestones leading up to the first bond issuance:

Delivery Milestones

Authorizing Legislation

August 2005

Joint GARVEE Issuance Committee

October 2005

GARVEE Project Criteria Adopted by Board of Transportation

January 2006

Initial Projects Identified for State Transportation Improvement Program

February 2006

GARVEE Projects Programmed in 2007-2013 STIP

March 2007

Memorandum of Agreement with FHWA Adopted by the N.C. Board of Transportation
and Executed

May 2007

N.C. Local Government Commission Approved 2007 Series

June 2007

Council of State Approved 2007 Series

July 2007

Trust Indentures and Official Statement

September 2007

Bond Ratings

September 2007

Retail and Institutional Pricing

September 2007

Bond Closing Proceeds Deposited with Trustee

October 2007

First Reimbursement from Trustee

October 2007

Unlike most states, North Carolina designed its GARVEE program with an
"evergreen" structure that allows it to issue additional bonds over time,
subject to certain legislative requirements. Highlights of North Carolina's
GARVEE legislation include the establishment of conservative annual debt
service relative to anticipated Federal revenue, geographic distribution
of the bond proceeds to finance improvements to the Federal highway system,
flexibility in project selection, and most importantly, legislative authority
for continuing use of the bonds.

The state map above shows the 43 GARVEE projects included in the current
State Transportation Improvement Program (STIP). These projects aim to increase
safety, preserve and improve interstate routes, and enhance North Carolina's
strategic highway corridors.

To accomplish the programmed improvements, NCDOT's preliminary plan calls
for bonds to be issued in four series: 2007, $287.6 million; 2009, $211.1
million; 2011, $254.6 million; and 2013, $82.3 million. The October 2007
bonds were awarded through a negotiated sale to an underwriting syndicate
led by Banc of America Securities LLC and UBS Investment Bank. RBC Capital
Markets and Wachovia Securities also were members of the syndicate. The true
interest cost on the bonds was 3.9 percent.

NCDOT estimates that 29 strategic projects were accelerated at an average
time savings of 3.4 years with an estimated cost savings after debt service
of $135 million through the initial October 2007 GARVEE bond issuance. The
agency also estimates that $509 million will be saved through the GARVEE
projects included in its newly adopted 2009-2015 STIP.

The Finer Points of
GARVEEs

Each issue of IFQ features questions and answers on the GARVEE program.
This issue focuses on the treatment of premiums and investment income.

Note that answers to these questions are not regulatory or legislative,
but represent FHWA's current administrative interpretations. If you have
questions or want to confirm any of this information, please contact your
local FHWA Division office. GARVEE guidance is also available at: http://www.fhwa.dot.gov/finance/resources/federal_debt/garvee_bond_guidance.aspx.

If a state receives a premium on the sale of GARVEE bonds does
it need to credit the premium back to FHWA?

The premium is the amount by which an issue's proceeds differ from the
face value of the bonds. If there is a premium on the transaction, it
means that bondholders bought the bonds for higher than their
"par amount" or "face value" (e.g., they bought a
$1,000 bond offering 5.5 percent interest, for $1,050). Investors might
do this because the interest rate of 5.5 percent is higher than prevailing
interest rates. In the bond pricing, underwriters and financial advisers
might set the rates at slightly higher than prevailing market rates to
ensure that the proceeds are sufficient to construct the project, so they
might offer slightly higher than prevailing market rates. Different combinations
of face value and interest payment may appeal differently to different
investors.

FHWA and the state must be certain that proceeds generated from the
sale of bonds go towards the project for which the bonds were sold. Those
net proceeds would include the premium. There may be an issue with the
premium if the net proceeds are more than needed to construct the eligible
project. In this case, the excess might be used to cover debt service - which would reduce the Federal funds required to pay debt service.

Do states need to give FHWA credit for the investment income
received from the cash balance in the construction bond proceeds account?
Can the investment income be used in the construction bond proceeds account
to pay construction costs?

In this case, the state does not need to give FHWA credit. Interest
earned on bond proceeds is considered state funds. If a state chooses
to use those funds for construction expenditures and/or payment of debt
service, the funds can count as part of the non-Federal share required
to match the Federal share of debt service.

The Finer Points of TIFIA

The "Finer Points of TIFIA" box provides responses to questions posed
by our readers and other observers. We hope you find this section useful
and that you will submit questions to Duane Callender, TIFIA JPO, 202/366-9644
or duane.callender@ dot.gov.

Question

Facing a scarcity of funds, the TIFIA program in FY 2009
placed restrictions on the amount of budget authority provided for any
single project. This decision has intensified stakeholders' interest
in the calculation of the TIFIA subsidy cost. How is the subsidy cost
calculated, and what factors influence the subsidy cost of a TIFIA direct
loan?

Answer

The subsidy cost of a TIFIA direct loan is calculated by using project
cashflows, along with the project's credit rating and repayment source,
to determine default and recovery rates. Historical information on recovery
and default rates are based on S&P data, including the S&P Capital
Adequacy Model. The Office of Management and Budget (OMB) Credit Subsidy
Calculator is then used to calculate the subsidy cost, which is a percentage
of the TIFIA loan amount.

Consistent with the Federal Credit Reform Act of 1990 and OMB requirements,
the subsidy cost of a loan is affected by recovery assumptions, allowance
for defaults, the borrower's interest rate, and fees. The subsidy cost
of a TIFIA loan is most heavily influenced by factors that fall into the
recovery category and the allowance for defaults category, although the
project's interest rate will have some effect on the subsidy cost, with
a higher interest rate marginally reducing the subsidy cost.

Recovery assumptions are affected by the source of funds pledged to
repay the TIFIA loan. A repayment pledge of state appropriations, for
example, will produce a subsidy cost that is several percentage points
lower than a repayment pledge of new toll revenue. The second factor that
affects the recovery assumptions is whether the TIFIA debt is senior or
subordinate. As would be expected, a TIFIA loan with a senior lien on
project revenue will have a lower subsidy cost than a TIFIA loan that
is subordinate.

The allowance for defaults category includes the project's credit rating
and the degree of backloading of the TIFIA debt. A higher credit rating
decreases the default risk, which, in turn, decreases the TIFIA subsidy
cost. Depending on the repayment pledge, a one notch increase in the credit
rating may reduce the subsidy cost a few percent. In addition to the credit
rating, the degree of backloading of the TIFIA debt impacts default rates.
A more highly backloaded TIFIA loan will have a higher subsidy cost than
a loan with a more level amortization schedule, all other things being
equal.

What's new

New Office Supports Innovative Transportation Projects

On October 15, 2008, the FHWA announced the creation of the Center for Innovative Finance Support (formerly Innovative Program Delivery). The new office provides "one stop shopping"
for state DOTs and others on new and innovative approaches to major highway
infrastructure projects. Experts from previously separate FHWA activities
are now merged into the Center for Innovative Finance Support, including the Major Projects Team (from
the Office of Infrastructure), the TIFIA Joint Program Office (from the Office
of the Chief Financial Officer), and the Innovative Finance Technical Services
Team (from the Resource Center), as well as experts in national pricing,
public-private partnerships, and transportation policy. Key functions supported
by each of four major emphases of the new office are summarized in the chart
to the right.

By assembling these experts within one office, information and advice can
be centralized, to help transportation agencies identify and explore innovative
delivery options for specific projects and anticipate and resolve problems
before they arise. Additionally, a key objective is to transform "innovative"
approaches into the "routine."

To achieve this, the new office will create a stronger agency presence
to facilitate coordination both externally and internally and to centralize
policy decisions; allow for the integration of data collection and research
activities; and accelerate associated program guidance. The office will advance
programs focused on innovative and non-traditional funding sources and contractual
processes as well as the changing roles and responsibilities involved in
designing, constructing, operating, maintaining, financing, obtaining, or
procuring highway related facilities. Finally, the office will provide the
assistance necessary to bring individual projects using innovative approaches
to successful implementation.

Center for Innovative Finance Support Teams

Program Development Team

Strategic Delivery Team

TIFIA JPO

Project Delivery

Establishing Foundation

Culture Changing

Credit Assistance

Project Expertise

Strategic Planning

Outreach

Policy/Legislation

Research

Capacity Building

Tolling, Pricing and P3 Programs

Innovative Finance

Project Delivery Process Change

Loans

Lines of Credit

Loan Guarantees

PAB Advice

Cost estimate reviews

Financial Plans

Project Management Plans

Critical Project Reviews

Regina McElroy is the Director of the Center for Innovative Finance Support. Ms. McElroy previously
served as Director of FHWA's Office of Transportation Operations, where she
provided national leadership and advocacy for a program aimed at reducing
recurring congestion through implementation of new technologies and innovative
approaches.

Announcement

TRB Organizing 4th National Conference on Transportation Finance

The Transportation Research Board (TRB) will convene its 4th national
conference on transportation finance on May 19 to 21, 2010 in New Orleans.
The Transportation Finance: Forging a Sustainable Future - Now! conference
will explore options for financing surface transportation projects as
the need for infrastructure exceeds available Federal and state funds.
This conference will be a forum for sharing information and presenting
the latest research findings and policy analyses related to transportation
finance.

TRB has issued a call for presentations on the following topics that
will help create a sustainable funding future:

SIB Highlights

SIB Loans Grow, New Programs Initiated

As of December 2008, loan issuances by the nation's State Infrastructure
Banks (SIB) topped $6.2 billion. As shown in the table to the right, 32 states
and Puerto Rico have made 609 loans, using their SIBs to leverage other available
funds and complete plans of finance for transportation projects across the
nation.

This issue of IFQ provides updates on one of
the most active SIB programs, the Pennsylvania Infrastructure Bank, which
has added a new loan program targeted specifically to municipal projects.
Also of note is the launch of a SIB initiative in Georgia, which will add
another financing tool for needed projects throughout the state.

State Infrastructure Bank Loan Agreements by State
As of December 30, 2008

State

Number of
Agreements

Loan Agreement
Amount ($000)

Disbursements
to Date ($000)

Alaska

1

$2,737

$2,737

Arizona

63

655,000

542,095

Arkansas

1

31

31

California

2

1,120

1,120

Colorado

4

4,400

1,900

Delaware

1

6,000

6,000

Florida

59

989,871

228,922

Indiana

2

6,000

6,000

Iowa

2

2,879

2,879

Maine

23

1,635

1,635

Michigan

44

33,635

29,307

Minnesota

17

122,476

112,295

Missouri

28

164,399

87,959

Nebraska

2

6,792

6,792

New Mexico

4

25,216

17,815

New York

10

27,700

27,700

North Carolina

6

1,279

1,279

North Dakota

3

5,7961

5,796

Ohio

96

286,839

199,382

Oregon

20

34,773

33,577

Pennsylvania

104

61,973

50,354

Puerto Rico

1

15,000

15,000

Rhode Island

1

1,311

1,311

South Carolina

13

3,311,000

2,430,000

South Dakota

3

28,776

28,776

Tennessee

1

1,875

1,875

Texas

68

310,888

290,642

Utah

1

2,888

2,888

Vermont

4

1,805

1,427

Virginia

1

18,000

17,989

Washington

3

2,376

487

Wisconsin

7

3,051

3,051

Wyoming

14

112,332

112,332

TOTAL

609

$6,249,853

$4,271,353

This issue of IFQ provides updates on one of the most active SIB programs,
the Pennsylvania
Infrastructure Bank, which has added a new loan program targeted
specifically to municipal projects. Also of note is the launch of a SIB initiative
in Georgia, which will add another financing tool for needed projects throughout
the state.

Pennsylvania Infrastructure Bank Provides Municipal Loan Program

When Pennsylvania began its State Infrastructure Bank in 1997, the Pennsylvania
Department of Transportation (PennDOT) created and capitalized the Pennsylvania
Infrastructure Bank (PIB). For several years, PennDOT provided highway and
transit loans through its PIB, helping fund dozens of needed projects across
the state. In 2004, recognizing a growing demand for aviation and rail freight
financing, PennDOT added both an aviation and rail freight component to the
PIB. In doing so, Pennsylvania became one of the few states to offer a loan
program for all major modes of transportation.

Still, a need remained for projects that were not eligible for funding
through the PIB such as non-Federal aid and local highway loans. The need
for a loan program for Pennsylvania's municipalities became more apparent
as the Department had to constantly turn away municipal applicants because
of eligibility issues. In 2005, PennDOT met this need by creating a loan
program exclusively for Pennsylvania's 2,635 municipalities.

Pennsylvania's municipalities are responsible for over 77,000 miles of
roadways and 6,400 bridges that are over 20 feet in length. Just the maintenance
and reconstruction of this vast network greatly exceeds the availability
of money at the local level. The average cost to replace a single bridge
would consume the entire annual budget of many municipalities, or even their
budgets over several years. And as the price for construction materials continues
to increase, the ability to just maintain, let alone expand, the local system
becomes even more problematic. In response to this need, PennDOT capitalized
the municipal account with $15 million in 2005 and with an additional $40
million in 2008. All loan repayments are deposited back into the PIB and
become available for new loans.

Demand for municipal loans continues to increase. Recognizing the need
to rebuild Pennsylvania's aging infrastructure, Governor Rendell highlighted
the PIB as an integral part of his 2008-2009 "Rebuild Pennsylvania" budget.
Through the Rebuild Pennsylvania program, PennDOT plans to annually make
$30 million available for loans over the next several years.

Most of the municipal loans are for the resurfacing and reconstruction
of local roadways. The PIB has also approved a significant number of bridge
loans whether 100 percent financed or using the loan to as a match for Federal
and/or state funds. PennDOT has approved loans for traffic signals, drainage,
lighting, roadway maintenance equipment, and the repair of flood damage to
roadways and bridges.

The interest rate is fixed at one-half prime and the maximum term is 10
years. For the purchase of roadway equipment, the maximum term is five years.
The majority of the loans are repaid by the municipality's annual share of
the state's gasoline/ diesel fuel tax receipts. However, municipalities have
repaid their loans with general tax revenue, special tax revenue, tax increment
financing, private developer agreements, and transportation impact fees.
Approved PIB loans have ranged from as little as $9,500 to as much as $4
million.

Since Pennsylvania is one of the most flood-prone states in the nation,
damage to roadways and bridges is an all too common event. In response to
this, PennDOT offers zero percent loans for municipal projects resulting
from natural disasters. Often this is the only source of money available
to reconstruct the infrastructure after a disaster. Many municipalities have
used the PIB to quickly restore their roadways and then use FEMA funds to
repay the loan.

The PIB has become an integral tool in transportation funding in Pennsylvania.
PennDOT has aggressively capitalized the PIB over the years to meet the demand
for loans. Because of the response to the PIB by Pennsylvania's municipalities,
it is obvious that the Department has created a program that fulfills an
important part of transportation funding.

In April 2008, the State of Georgia reached a significant milestone when
Governor Sonny Perdue's Georgia Transportation Infrastructure Bank (GTIB)
initiative was enacted through House Bill 1019. This legislation authorizes
the State Road and Tollway Authority (SRTA) to operate and manage the GTIB
Program, which was created and funded to provide government loans for a wide
variety of transportation projects to help address the growing needs of the
state.

The GTIB is a revolving infrastructure investment fund, much like a bank,
that can be used to offer financial assistance to state, regional, and local
government entities to fund needed transportation projects. The law allows
government units such as cities, counties, and local tax-improvement districts
to borrow funds from the new bank under the direction of the SRTA. The bank
will be able to fund projects that may not ordinarily receive reasonable
financing terms from the private sector. Georgia's GTIB program is currently
under development by the SRTA based on best practices from other states or
grants.

The GTIB may provide loans to government entities for transportation projects
that demonstrate financeability as well as transportation merit, engineering
merit, economic merit, project feasibility, and innovative concepts. Eligible
projects for GTIB loans include highways (roads), bridges, air transport
and airport facilities, rails, or transit and bicycle facility projects which
provide public benefits by either enhancing mobility and safety, promoting
economic development, or increasing the quality of life and general welfare
of the public. The objectives under consideration for managing the GTIB include:

Safety of capital;

Execution of a streamlined and efficient application process;

Selection of projects that add transportation and economic value to
the state;

Consistency and fairness in the evaluation of applications;

Provision of a smooth operational process that maintains loan documents,
manages the bank's capital, and tracks loan expenditures/repayments; and

Ability to track, monitor, and report on the financial situation of
the bank.

SRTA is now establishing procedures to provide for the loan and grant application
processes, and operational processes for the bank. As this program is further
developed, SRTA will gather input from stakeholders to assess the needs of
the program.

SRTA encourages local governments to get more information and apply for
GTIB loans in the future by visiting www.georgiatolls.com.

Ohio DOT Creates Second SIB Bond Fund Program

The Ohio Department of Transportation (ODOT) has established a second investment
grade bond financing program similar to the ODOT State General Revenue Fund
Bond Fund Program by leveraging the existing and future Title 23 loan repayments
("Federal Funds" or "Direct Loans") in the State Infrastructure Bank (SIB).
The Federal Title 23 Transportation Infrastructure Bond Fund, which was established
July 30, 2008 received an AA rating from Fitch. This rating was based upon
the credit quality over the last 10 years of the existing Federal loan portfolio,
as well as the available program reserves that will be pledged to the new
program.

Similar to the State Transportation Infrastructure Bond Fund (General Revenue
Fund program), bonds are issued on behalf of eligible Ohio political subdivisions.
This bond program is for projects that are classified as Title 23 eligible.
The program has an open indenture and bonds can be issued on a project by
project basis, as needed. Issuances can range from $2 million to $30 million.
The political entities can pledge a variety of revenue sources as repayments.
All current and future borrowers can take advantage of the AA rating at no
additional credit enhancement costs.

The SIB bond fund is structured so that all repayments from the existing
Title 23 loan portfolio accounts are pledged to support any bond borrower
repayment shortfall. Next, all cash in the direct loan portfolio account
is pledged. Lastly, the existing $5 million program reserve fund is pledged
in the event of a bond borrower default. The program can issue approximately
$50 million in bonds.

As of December 2008, there were 47 direct loans to 38 borrowers with outstanding
principal totaling $64 million. Covenants of the program include that it
will maintain a $5 million program reserve, or five percent of the outstanding
bonds. The master indenture requires a cash flow coverage ratio of at least
1.2 times (x) debt service. The state provides a moral obligation to replenish
the reserve if it falls below its required level.

The first issuance funded the initial $5 million program reserve. Currently,
there are two public entities that are considering utilizing the program
for their projects.

Technical Corner

Texas Pass-Through Financing Program Accelerates Improvements

Texas is using a new approach to stretch limited highway funds and help
meet the state's transportation goals. Through its pass-through financing
program, the Texas DOT (TxDOT) will reimburse a developer for the costs of
constructing or expanding a state highway project. The developer will finance,
construct, maintain, and/or operate a project, and TxDOT will then provide
periodic payments that are tied to the actual usage of the highway, measured
in terms of each vehicle that drives on the highway or a vehicle-mile fee.
A new highway project can be either tolled or non-tolled.

Pass-through financing projects are different than those financed by conventional
tolls, because they do not require toll plazas or toll collection equipment.
Rather, the monies typically paid by motorists in conventional tolling are
instead paid by TxDOT.

Due to growing demand, as of February 2009, TxDOT will award funds through
its pass-through financing program based on the traffic that a project experiences,
rather than on a first come, first-served basis.

Application Process Any public entity - Regional Mobility Authority, Regional
Tollway Authority, and local/county governments - or a private developer
can submit an application to fund a transportation project using pass-through
financing. Applications are submitted to and reviewed by the local TxDOT
District Office and then forwarded to TxDOT's Design Division. TxDOT will
then review all requests and make recommendations to the Texas Transportation
Commission. If a proposal is submitted by a private developer, TxDOT will
seek competitive proposals to ensure best value. Commission approval is based
on multiple factors, including financial benefits to the state, local support
for the project, congestion relief and regional air quality benefits, compatibility
with existing or planned projects, the developer's experience in developing
highway projects, and whether or not the project is included in the Unified
Transportation Program. The Commission approves the negotiated and final
terms of all proposals.

Elements of an Agreement

Each pass-through financing agreement will identify the relative responsibilities
of TxDOT and the developer in the following areas:

Scope of work, including schedule and estimated costs;

Budget, which includes the level of pass-through tolls, maximum and
minimum periodic payments, and a maximum total payment;

Environmental studies, mitigation, remediation, and compliance;

Engineering services;

Right-of-way and real property;

Utilities;

Construction;

Maintenance; and

Repayment.

Benefits

Pass-through financing can help local communities get a needed transportation
project financed and built more quickly than the traditional state program.
And communities are reimbursed by the state as travelers use the project.
If the use is high, the state will repay at a faster rate.

The first project in Texas using pass-through financing involved turnaround
bridges over IH-25 at SH 29 in Williamson County constructed by Austin Road
and Bridge. The $3.7 million project completed on time and budget was opened
to traffic in August 2008.

TxDOT is seeking applications for other projects that can be accelerated
through the pass-through financing program.

Three TIFIA-Financed Toll Roads Opened
to Traffic

Late 2006 and 2007 saw the first TIFIA financed toll roads open to traffic.
Advanced by both public and private entities, these projects comprise almost
80 miles of new roadways.

TxDOT officially opened the first 27 miles of the $3.2 billion Central
Texas Turnpike System on November 1, 2006, almost a year ahead of schedule.
Consisting of three contiguous highways in the Austin metropolitan area,
the system is one of the largest construction projects in the nation. With
the opening of the final segment in April 2008, the 65-mile system was completed
nearly $400 million under budget. Transactions and revenues have grown steadily,
continuing to exceed projections. The Central Texas Turnpike System has generated
more than 34 million transactions and $27 million in revenue through the
second quarter of FY 2009. Average monthly revenue for the year to date has
exceeded projections by 12 percent.

The Central Texas Regional Mobility Authority, the first local agency to
advance a tollway under Texas enabling legislation, opened the 11.6-mile
183A Toll Road in Austin on March 3, 2007. This highway, which connects and
operates seamlessly with the Central Texas Turnpike System, opened on schedule
and within its $336.6 million budget. In its first year of operation, the
facility averaged nearly 58,000 toll transactions each weekday and generated
roughly $8 million in revenue, more than twice the transactions and revenue
originally projected. Monthly toll transactions for 2009 are averaging nearly
12 percent above 2008 levels. The 183A project converted to all electronic
toll collection on December 1, 2008 and the first programmed toll increase
of 25 cents is scheduled for 2010.

The privately-built South Bay Expressway opened on November 19, 2007. This
9.2-mile facility in San Diego County extends from the U.S./Mexico border
north through the Otay Mesa. Also known as State Route 125 (SR 125), the
project was developed and is being operated by Macquarie Infrastructure Group
and Macquarie Infrastructure Partners pursuant to a franchise agreement with
the California Department of Transportation. The $140 million TIFIA loan
helped "jump start" the project with the developer's own private capital
together with bank loans funding the rest of the total project cost of $660
million. This public-private partnership - among local, state, and Federal
agencies and an international toll road developer - delivered the project
years before it might have been completed under traditional methods. Since
its opening, revenue performance has lagged projections due in large part
to weak economic conditions, including regional issues such as high home
foreclosure rates and slow land use development in the San Diego area. An
updated traffic study was completed in December 2008, which reflects reductions
in the traffic forecasts over the concession period, compared to the original
projections in line with current performance. However, the study confirms
the long term viability of the project. The revised financial plan, which
takes into account the lower revenue forecasts, shows that the TIFIA loan
can be repaid by the final maturity date of 2041.

Each of these toll road financings is taking advantage of the TIFIA program's
ability to defer debt service payments for up to five years after substantial
completion. During this deferral period, toll revenues can be used to pay
operating expenses and senior debt, without the burden of making current
payments on TIFIA debt obligations. The deferred TIFIA interest accrues to
the loan balance to be repaid in later years, when revenue projections indicate
a stronger cash flow. As the "patient lender," the U.S. DOT enhances the
credit quality of the senior debt, lowering project costs, and improving
prospects for financial success.

The beneficial use of flexible TIFIA credit assistance to help toll roads
get through early "ramp-up" periods is significant because the use of tolling
to pay for new capacity has increased over the last decade. A study prepared
for the FHWA reported that, "During the last 10 years, an average of 50 to
75 miles a year of new access-controlled expressways has been constructed
as toll roads out of an overall average of the 150 to 175 miles of urban
expressways opened annually. Toll roads, therefore, have been responsible
for 30 to 40 percent of new 'high end' road mileage over the past decade."

IFQ is Back!

No, you did not miss any issues. . . IFQ has been on a hiatus for over a year.
FHWA will introduce a new look for the newsletter with the next issue, to
continue to provide our readers with the latest on Federal transportation
finance and program delivery. Keep your eyes on the Center for Innovative Finance Support web site at http://www.fhwa.dot.gov/ipd/ for
more information and future issues of the newsletter.